Gold futures dropped sharply on Monday, hitting a six-week low in the process. The selling was fueled by a rise in the U.S. Dollar to a 3 ½-month high. Trading was likely limited because of the Labor Day holiday in Asia.
Gold is also being pressured by increased demand for higher risk assets, rising Treasury yields and expectations of additional Fed rate hikes later in the year.
Federal Reserve officials are scheduled to convene on Tuesday and Wednesday for a regular policy meeting. The central bank is widely expected to stand pat on policy and investors will be looking for hawkish language in its monetary policy statement that hints at additional rate hikes later this year. At this time, investors are pricing in a rate hike in June and September.
The easing of geopolitical tensions also put pressure on gold. Investors are easing their concerns over a potential trade war between the United States and China as well as worries over potential military action involving North Korea now that the rogue nation has agreed to dismantle its nuclear testing facility.
In other news, the Core Personal Consumption Expenditures (PCE) price index rose 0.2 percent in March, matching estimates. On a year-over-year basis, however, the core PCE rose 1.9 percent last month, the biggest increase since February 2017.
Forecast
Gold prices continued to retreat early Tuesday shortly ahead of the New York opening and the start of the Fed’s two-day meeting later in the session.
At 0851 GMT, June Comex Gold futures are trading $1309.40, down $9.80 or -0.74%.
Technically, sellers took out the March 20 main bottom at $1312.40 and appears headed toward the March 1 main bottom at $1309.30. There is a steep drop off under this level with $1296.20 the next support target.
The market is likely to remain under pressure as long as investors continue to focus on future interest rate hike expectations. The Fed is widely expected to hold interest rates unchanged at this meeting, however, it is expected to be a little more hawkish with the language in its monetary policy statement. This should be enough to solidify a June rate hike.
In economic news, gold traders will get the opportunity to react to a slew of data including the major ISM Manufacturing PMI. Minor reports include Final Manufacturing PMI, Construction Spending, ISM Manufacturing Prices and Total Vehicle Sales.